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Berkshire’s Munger Addresses Life After Buffett

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For anyone watching Berkshire Hathaway, the question looms: What happens when 84-year-old Chairman Warren Buffett is no longer around?

Vice Chairman Charlie Munger, 91, takes some time during his part of the firm’s annual letter to shareholders–the 50th annual such letter–to address “the elephant in the room.”

He asks himself “Whether abnormally good results would continue at Berkshire if Buffett were soon to depart,” and then answers: 

Provided that most of the Berkshire system remains in place, the combined momentum and opportunity now present is so great that Berkshire would almost surely remain a better-than-normal company for a very long time even if (1) Buffett left tomorrow, (2) his successors were persons of only moderate ability, and (3) Berkshire never again purchased a large business.

But, under this Buffett-soon-leaves assumption, his successors would not be “of only moderate ability.” For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

Jain, 63, who runs the reinsurance business at Berkshire (BRK.A), and Abel, 52, who is chairman and CEO of Berkshire Hathaway Energy, are widely considered the front-runners to succeed Buffett. Referring to his eventual successor, Buffett himself said Monday on CNBC’s ‘Squawk Box’  that the Berkshire board “has talked about it at every meeting for I don’t know how many years. We have a precise plan in mind.”

In his portion of the shareholder letter, Munger went on to say of the two contenders:

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.

Nor do I think that desirable purchases of new businesses would end with Buffett’s departure. With Berkshire now so large and the age of activism upon us, I think some desirable acquisition opportunities will come and that Berkshire’s $60 billion in cash will constructively decrease.

For Buffett’s part, he assesses Berkshire’s currently healthy state and looks ahead on behalf of prospective Berkshire stock buyers, concluding by returning to some of his favorite themes and by quoting Benjamin Graham, as he does many times throughout the letter:

For those investors who plan to sell within a year or two after their purchase, I can offer no assurances, whatever the entry price. Movements of the general stock market during such abbreviated periods will likely be far more important in determining your results than the concomitant change in the intrinsic value of your Berkshire shares. As Ben Graham said many decades ago: “In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.” Occasionally, the voting decisions of investors – amateurs and professionals alike – border on lunacy.

Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere.

See Warren Buffett’s 8 Warnings for Investors